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U.S. stocks sink on N. Korean bomb claim, China worries

  • Trader Gregory Rowe worked on the floor of the New York Stock Exchange today. Stocks opened lower as investors fretted about signs of belligerence in North Korea and more weakening of China’s economy. (AP Photo/Richard Drew)

NEW YORK » U.S. stocks dropped today as investors fretted about signs of belligerence from North Korea and more weakening of China’s economy, which pummeled energy companies. The losses were broad, and the Standard & Poor’s is on pace for its lowest close since October.

KEEPING SCORE: The Dow Jones industrial average dropped 214 points, or 1.3 percent, to 16,945 as of 12:35 p.m. Eastern time. The Standard & Poor’s 500 index lost 22 points, or 1.1 percent, to 1,995. The S&P 500 hasn’t closed below 2,000 since Oct. 14. The Nasdaq gave up 46 points, or 0.9 percent, to 4,845.

NORTH KOREA: The government of North Korea announced that it had conducted its first successful test of a hydrogen bomb, but the claim was met with widespread skepticism. North Korea has tested several nuclear devices but has not shown the capability to make a hydrogen bomb.

CHINA CONCERNS: A monthly survey of China’s service industries slipped to a 17-month low, renewing fears that the second-largest economy in the world was stumbling.

Manufacturing in China has been slowing, and Beijing has been working to make the country’s economy less reliant on trade and investment and focus it instead on more self-sustaining private consumption and services. The survey shows that the service sector may not be strong enough to sustain China’s level of growth.

THE QUOTE: Scott Wren, senior global equity strategist for the Wells Fargo Investment Institute, said China’s transition to a service economy is not failing. But he said it will be an extremely long process that will have rough spots.

“It shouldn’t be a surprise that there are bumps in the road,” Wren said. He added that investors are worried that economic growth in China will collapse, which he does not anticipate.

“Stocks are not trading on fundamentals,” he said. “They’re trading on fear that Chinese growth is going to collapse and that these lower oil prices are going to lead to a growing number of defaults in the high-yield bond market.”

COMMODITIES: The signs of weakness in China, a major consumer of energy, pummeled oil prices. Brent crude, a benchmark for international oils, fell $1.81, or 5 percent, to $34.61 a barrel in London. U.S. benchmark crude sank $1.58, or 4.4 percent, to $34.39 a barrel in New York. That’s the lowest price for U.S. crude since February 2009.

The price of wholesale gasoline sank 6.6 percent after the U.S. government said inventories of gas climbed by 10.6 million barrels last week, and the price of heating oil tumbled 3.6 percent.

ENERGY AND METALS: Energy stocks fell with those prices. Marathon Oil declined $1.25, or 9.8 percent, to $11.51 and Murphy Oil shed $2.27, or 10.1 percent, to $20.32. Consol Energy lost 87 cents, or 10.2 percent, to $7.66 and Apache fell $3.94, or 9.1 percent, to $39.59.

Gold prices edged up 1.1 percent to $1,089.80 an ounce, and shares of Newmont Mining gained 27 cents, or 1.5 percent, to $18.70.

JOBS DATA: The international news outweighed some solid hiring data in the U.S. Payroll processor ADP says U.S. businesses hired 257,000 workers in December, the most in a year. The ADP report covers only private businesses, and the government will issue its own report on Friday.

BONDS: The markets have endured a rough few days to start 2016. J.J. Kinahan, chief markets strategist for TD Ameritrade, said that’s making bonds more appealing.

“Bonds have been up a lot this year even though the interest rates are nothing to be excited about,” he said. “They want the security of knowing that their money is safe.”

U.S. government bond prices rose today. The yield on the 10-year Treasury note fell to 2.18 percent from 2.24 percent.

PUMP THE BRAKES: Auto retailer AutoNation said it had to offer large discounts in December, especially on luxury vehicles. The company said it will report smaller profits per vehicle in the fourth quarter. The stock dropped $6.70, or 11.8 percent, to $50.04.

CHIPOTLE HIT AGAIN: Chipotle Mexican Grill said it received a federal grand jury subpoena as the government looks into norovirus outbreak at a California restaurant this summer.

Chipotle also disclosed that sales at restaurants open at least one year plunged 30 percent in December in the wake of an E. coli outbreak that affected dozens of restaurants and a norovirus outbreak in one location in Massachusetts.

Shares fell $19.55, or 4.4 percent, to $429.48. The stock has fallen 39 percent since the outbreaks began in October.

OVERSEAS: France’s CAC 40 shed 1.5 percent and Germany’s DAX dropped 1.6 percent. Britain’s FTSE 100 lost 1.5 percent. Japan’s Nikkei 225 index lost 1 percent and South Korea’s Kospi fell 0.3 percent. Hong Kong’s Hang Seng shed 1 percent. The Shanghai Composite Index in mainland China rebounded 2.3 percent, however, as the Chinese government said it will keep some market-stabilizing measures in place.

CURRENCIES: The euro edged up to $1.0760 from $1.0744. The dollar fell to 118.56 yen from 118.97 yen late Tuesday.

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